Are you one of those people who plan to go through life with bad credit? From credit cards to mortgage loans and everything in between, people with poor credit pay much more for goods and services purchased over time than those with excellent credit. The information below should convince you it’s time to earn and keep an excellent credit rating to save yourself thousands of dollars over your lifetime.

Auto Loans: Suppose two people purchase identical cars from the same car dealership. Both apply for auto loans in the amount of $18,000 and each plans to repay her loan over a three year (36 month) period. The only difference between the two people is that Person A has an excellent credit rating and Person B has a bad one. Person B will have to pay a higher interest rate because she has a lower credit score. What will be the difference in total price paid for their cars?

To illustrate this, we will use an auto loan interest rate of 7.30% for those with excellent credit and 20.95% for those with bad credit. Using the same terms as set forth in the paragraph above, the person with excellent credit will have a car payment of $532.07 per month. The total price paid for her car will be $19,154.52. The person with bad credit will have a monthly car payment of $677.69, which is $145.62 more each month than the person with excellent credit. The total price paid for her car will be $24,396.84. What has a poor credit rating cost Person B? In this case, the person with bad credit will pay $5,242.32 more for the very same car that the person with excellent credit purchased. She will also likely pay a higher insurance premium.

Perhaps you’re thinking that your credit isn’t that bad, certainly not bad enough to warrant financing at a 20% rate. You could qualify for a loan at 13%. Well, even at 13%, you will pay $2,679.16 more for the same car than will Person A with excellent credit.

In the real world, the difference is even greater since people who obtain financing at a lower rate can afford to pay off their cars one, two or even three years earlier than the person with bad credit. The person with poor credit must stretch out his loan over a longer period in order to afford the monthly payments, perhaps five years instead of three, thus driving the finance charges through the roof. This is illustrated with the following example. At 13%, borrowing $18,000 for a term of 36 months (3 years) would require a $606.49 monthly payment, while repaying the same loan over a 60 month (5 years) period reduces the monthly payment to $409.56. You might not be able to afford the car unless the payment is $409.56, but taking two additional years to pay it off is going to add $2,739.68 in extra finance charges to the price of the car.

Editor’s note:

We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).

If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.

But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.

The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.

This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.

Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit.

Posted by Christian C Culpepper